Duff Files For Debt Offering

Chicago-based Duff & Phelps Inc. has filed with the Securities and Exchange Commission to sell $60 million of 10-year notes.

The offering by the credit rating and money management firm would be its first foray into the public credit markets.

The offering of senior subordinated notes, to be made by Duff & Phelps Funding Corp., is in connection with the proposed $151.6 million acquisition of Duff & Phelps by Riordan Freeman & Spogli, a Los Angeles-based leveraged-buyout firm. The buyout is expected to close by February.

The Duff & Phelps employee stock ownership plan that currently owns the company is to receive $128.5 million in the buyout. Most of the remaining cost of the purchase is for fees and expenses.

According to documents filed with the SEC, all but $36 million of the acquisition price will be funded through borrowed money. That high leverage qualifies the note offering as a so-called junk bond. For the purposes of putting together financial statements in the SEC filing, the company assumes it will pay 15 percent annual interest on the notes.

The SEC filing notes that Duff & Phelps management will buy $9.75 million of the $30 million of equity financing that will be used to purchase the firm. However, half of that $9.75 million will be borrowed money.

Merrill Lynch Capital Markets will underwrite the note offering.

The documents filed with the SEC show that Duff & Phelps has enjoyed strong revenue and earnings growth in recent years.

The documents show that a good portion of Duff & Phelps` earnings comes from management fees connected with a closed-end fund, Duff & Phelps Selected Utilities. Of the company`s $29.9 million in revenue in fiscal 1987, $6.1 million came from the closed-end fund`s fees.

The SEC filing noted that certain management employees stand to receive bonuses under the buyout plan.

Francis Jeffries, Duff & Phelps` president and chief executive officer, will receive about $1.15 million under the bonus plans, which are for fiscal years 1987 and 1988.